Key insights
- Rising healthcare costs are significantly impacting retirees, consuming 16% of their monthly income and outpacing general inflation. This trend, coupled with increasing Medicare premiums, poses a challenge for those on fixed incomes. Financial planners advise aggressive HSA funding and realistic cost estimations for pre-retirees to mitigate future healthcare expenses, suggesting a potential drag on consumer spending and a need for increased savings.
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Healthcare costs are taking a big bite out of retirees' monthly income.
In a recent survey by Schroders, retirees said they spend an average of 16% of their monthly income on healthcare costs. Nearly three-fifths (58%) of retirees said they expected Medicare to cover a greater share of their medical expenses.1
Although retirees are generally eligible for Medicare starting at age 65, the federal health insurance program may pay only a portion of people's medical expenses, as there's no out-of-pocket limit under traditional Medicare.2
With healthcare inflation outpacing general inflation, high medical expenses can be especially challenging for those living on a fixed income.3
And it's not just medications and doctors visits that are costing retirees. Medicare premiums have also been on the rise: in 2026, Medicare Part B premiums rose to $202.90, up nearly 10% from the previous year.4
In order to manage healthcare costs in retirement, financial planners said you should be diligent about planning before you leave the workforce.
"For pre-retirees, the three moves that matter: fund your HSA aggressively, get a realistic cost estimate using actual Medicare premium data, and build in a [potential] buffer for the gap years between early retirement and Medicare eligibility at 65," said Jeff Judge, a certified financial planner (CFP) and managing partner at Chesapeake Financial Planners, in an email.
With a health savings account (HSA), contributions are tax-deductible, money grows tax-free, and withdrawals are tax-free when used for qualified medical expenses. After you enroll in Medicare, you'll no longer be able to contribute to an HSA, but you will be able to use your funds for Medicare costs, such as Part B premiums, noted Judge.
And once you're in retirement, be careful when choosing between original Medicare and Medicare Advantage—think about your healthcare needs, budget, and more. With Medicare Advantage, you assign a private insurer to cover Part A and Part B services.
"Advantage plans often come with lower premiums and can include dental or vision, but the tradeoffs are real: prior authorization, narrow networks, and plans that change year to year," Judge said. "If you're healthy and want to save on premiums, [Medicare] Advantage can work."
Additionally, you'll want to be cautious with your choice, as changing your mind about coverage later on could cost you.
While you have the option of switching from Medicare Advantage to original Medicare during open enrollment periods, many people on original Medicare purchase a Medigap policy—an extra insurance policy provided by a private insurer—to help cover out-of-pocket expenses. 5
These policies, however, are generally not guaranteed issue (except during a one-time enrollment period), so insurers can charge higher premiums or deny you later on if you decide to purchase a Medigap policy.6
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